One of the topics we cover in Presimetrics is the relationship between the tax burden (i.e., the share of income going to taxes) and economic growth. As shown also in a recentpost, Presidents who cut the tax burden tended to produce slower growth than Presidents who raised the tax burden.

In this post, I want to begin to address causality. As we stated in the book and as I’ve since said a few times, I don’t think higher tax burdens in and of themselves cause faster economic growth, but rather that increasing tax burdens are correlated with some other criteria that create conditions that help produce economic growth.

But let us start by addressing the issue of timing first. A number of people have indicated in comments or offline that perhaps the reason for the strong correlation between tax burdens and economic growth could be because when the economy is growing rapidly, Presidents feel comfortable boosting taxes.

I’ve pointed out a few a problems – theoretical and empirical – with this line of argument, but I think I can illustrate it best with a simple graph. Since 1929, the first year for which data is available from the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables, there have been five Presidents that have served an eight year or more term: FDR, Ike, Reagan, Clinton and GW. Additionally, there are several more “quasi-eight year terms.” These are instances in which a VP took over upon the death or resignation of the President and maintained a similar a policies similar to those of his predecessor (JFK/LBJ and Nixon/Ford), or in which a VP took over a mere few months into a new terms and thus could put his own stamp on just about the entire eight years (Truman).

The graph below shows the change in the tax burden in the first two years of each administration on one axis and the growth in real GDP per capita during the remaining six years of each administration on the other axis.

Figure 1Notice… increases in the tax burden in the first two years of an administration tend to be followed by rapid growth during the remainder of that administration. Conversely, administrations that greatly decreased the tax burden during their first two years suffered from poor economic growth during their remaining six years. This relationship, at least, is very difficult to explain by insisting that administrations which enjoyed rapid growth simply were more able to raise tax burdens than administrations which grew more slowly. It is also impossible to explain by anything said by anything you hear out of the Austrians or the Chicago school.

(Incidentally – I have a simple explanation for why some administrations appear above the regression line and some below. I know that it applies to the administrations that begin in 1952 because I’ve written about it in the past. I’ll collect the data going a bit further back and some time in the future will write a post on that.)

So what is going on here? Michael Kanell and I advanced several theories in Presimetrics but the one I think makes the most sense is that changes in the tax burden are a sign of the degree to which an administration enforces laws and regulations. Consider this graph that appeared in a post last week:

Figure 2

Notice that among the Presidents to increase the tax burden are some who raised marginal tax rates (FDR, Clinton), others who decreased it (LBJ), and others still under whom marginal tax rates didn’t change. Similarly, tax burdens fell under some Presidents who cut marginal rates (Reagan, GW), Presidents who raised marginal rates (Bush Sr.), and others who left it unchanged. And for tax burdens to fall at a time of increasing marginal rates really requires more people avoiding taxes they legally owe. Similarly, for tax burdens to rise at a time of decreasing marginal rates one would need more people paying the taxes they legally owe. Thus, enforcement.

Furthermore, an administration willing to turn a blind eye toward one set of laws and regulations is probably more than willing to turn a blind toward other rules and regulations. It is not a coincidence that aren’t keen on tax collection also tend to view the government as the problem and not the solution.

Now, corruption (and let’s call it what it is) is a tough thing for which to test. But I think I there are signs that often appear among corrupt regimes, and one of them is the displacement of private sector by the government. Running an honest business when the government is dishonest is very difficult. The government will side with its favorites and everyone else will have a tough time. It becomes easier to make a buck by playing legal technicalities than by actually doing something useful. This is not to say that some countries do not succeed in having large government sectors without remaining honest and transparent – I suspect Denmark and Singapore are examples of that, though I’m not all that familiar with data for those countries. But we are not Denmark, and if a regime populated with flacks who insist they believe in small government takes over a growing piece of the economy despite taking steps to “encourage the private sector” it probably isn’t a good sign.

So with that… the next graph shows changes in the tax burden in years 1 and 2 on the one hand, and changes in the size of the federal government’s expenditures as a share of GDP during the remaining six years on the other hand.

Figure 3

Notice that administrations that started off by cutting the tax burden also went on to increase the government’s share of the economy. That relationship is stronger and more evident if one looks at changes in the tax burden in the first four years of an administration against changes in the size of the federal government during the remaining four years.

Figure 4

Clearly, in general, the more an administration cut the tax burden in its early years, the smaller the private sector’s share of the economy it its later years, contradicting all rhetoric of the tax cutters, not to mention all Chicago or Austrian “economic theory.” After all, those folks will tell you that lower taxes are going to jumpstart the private sector, right? Not what happened in the real world, is it?

Notice also that the relationship is stronger for the four post-War Presidents that served a full eight years than for the entire sample. A switch in administrations could lead to a break in our little “lower taxes as a sign of corruption shrinks the private sector” story. I note also something else… take a look at where FDR sits on the graph above. Does that fit with the accepted FDR narrative in this day and age?

Which leads me back to corruption. If cuts in the tax burden are a sign that the federal government is tolerating corruption, one would expect that administrations that start off by cutting that burden would end by seeing the private sector shrink relative to the public sector. And that is precisely what we have seen.

Do you have a better explanation?

—

Data sources and comments.

The definition of the tax burden used in this post is Federal government current receipts from line 1 of NIPA Table 3.2divided by GDP from NIPA Table 1.1.5, line 1. Real economic growth was measured as the change in real GDP per capita, which was obtained from NIPA Table 7.1, line 10. The government’s share of the economy is measured the federal government’s current expenditures (line 23 of NIPA table 3.2) divided by GDP.

Note that in past posts I have tended to only consider the first eight years of the FDR administration to avoid even getting close to the war years. As noted in previous graphs, even leaving out the years after 1938, FDR oversaw the fastest economic growth or any President for whom there is reliable data available. However, in this post, I was trying to remain consistent by sticking to 8 year stretches of data. Note also that, as shown in the fourth graph, the federal government’s share of the economy actually shrunk from 1936 to 1940.

Growth rates are measured from the year before a President took office to his last year in office. Note also… if its not obvious, this post deals with the tax burden, the share of GDP going to the Federal government, and not marginal tax rates. Please do not insist on commenting on a topic unrelated to this post.

Comments (115)

Dennis

June 21, 2010 11:00 am

The main question I have is pretty simple: tax revenue is procyclical (income growth is taxed at marginal rates, bringing up the average) and government size is relatively fixed on an absolute basis (or, ideally, countercyclical), which suggests that gdp growth is the controlling factor. A president who had high GDP growth could then appear to be a tax hiker and government cutter on these metrics while in fact doing neither. That is, to what extent are all of these points just restatements of “Democrats are better for GDP growth than Republicans?”

Ben H

June 21, 2010 11:31 am

Could it be that when taxes are increased many people work harder in order to keep their after-tax income at the level they desire?

coberly

June 21, 2010 11:47 am

Ben H

i don’t know. but your idea is contrary to what “they” are always telling us, which is that if you raise taxes on the rich they will feel faint and stop working.

it is difficult for “the poor” to “work harder.” they get a job where they can, and do the work the boss gives them to do. i can’t say that i have even noticed that the work pace in the private sector has anything to do with the profit level.

there is a tendency to “work harder” when starting a new business, and to revert to a saner level of work intensity when you know what to expect from your “market.” but this only applies to the small businessman himself. for big businesses, or the employees of small businesses, it depends on the latest fad in productivity theory. note that in the old South, where they didn’t have to pay overtime, they got notoriously worse productivity than the folks in the North who tended to be worker-owners.

Jay

June 21, 2010 12:47 pm

And you wonder why the hard sciences laugh at you? N = what? Are you serious? Because 3 out of 4 dentists prefer crest, 3 out of 4 dentists prefer Colgate and 3 out of 4 dentists say there is no difference between the two brands. I can see the Bear’s minds beginng to explode.

I take it your results are so conclusive that you would bet everything you own to win 1 penny that you are on to something meaningful here.

Greg

June 21, 2010 12:55 pm

Ben

I suspect that some of what you say is operative. The motive to keep your after tax income at a certain level is probably greater than the motive to keep the govt from getting their hands on more of my efforts. Especially when most of us have a fixed level of debt to service.

Jay

June 21, 2010 1:00 pm

” I note also something else… take a look at where FDR sits on the graph above. Does that fit with the accepted FDR narrative in this day and age?”

To use a football analogy… FDR took a team that was 1-15 the year before and increased their wins by 300% when the team went 4-12 the next year.

Anyone who inherited the presidency in 2000 was taking over a football team that had overachieved, going 14-2 the previous year and just lost several key players (Pets.com, Stamps.com, everyone elses name that ended in .com) and managed an 8-8 record the next year, showing a decline in wins.

A.Citizen

June 21, 2010 1:16 pm

Albert Einstein The hardest thing in the world to understand is the income tax.

Albert Einstein Reality is merely an illusion, albeit a very persistent on

The Big E beat yah do it guys. Myself, I always find it astonishing how this thesis is persistently denied by so many….

…perhaps a Sinclair quote would be more apt?

buffpilot

June 21, 2010 2:17 pm

Mike,

Ok, what are your assumptions for comparing Presidential performance for this analysis? I assume in your book they will be laid out but I never see them listed on AB or missed them. As a minimum the following assumption all have to be true for you to make the analytical leaps you’re making.

3)The President has the control, through his policies, to determine the GDP growth rate of the US. These policies are party dependant and unable to be used by the other party (i.e. [...]

buffpilot

June 21, 2010 2:42 pm

To all,

Since we are trying to compare Presidents, I am far more interested in US combat deaths due to our wars than a imperceptable difference in GDP growth. I think we can all agree that losing 10s of thousands of US citizens in war is worth at least a point of GDP growth.

Don’t you all agree? If not how many US lives a is a point of GDP growth worth?

So we have a total of 633,470 dead under Democrat Presidents and 8,000+ dead under Republican Presidents. Sounds like it would be a really good idea to vote for Republicans if you value the lives of US citizens (let alone the millions who died under the war-mongering Democrat party policies that were not US citizens). The inescapable conclusion of the past 100 years is that a vote for a Dem is a vote for massive death of US citizens….

Straight-forward analysis just like we have been seeing on AB….

(Note all numbers from Wiki and include US civilian losses also)

Islam will change

buffpilot

June 21, 2010 2:44 pm

hvidehval,

I thought he was saying that government is implicitly corrupt and the bigger government gets the more corrupt it becomes….

Islam will change

Rdan

June 21, 2010 5:05 pm

But there is no claim that such voting republican is a peace vote is there…or dems? Just the big huge elephant in the room that tax cuts cure.

Mike Kimel

June 21, 2010 5:11 pm

Dennis,

I’m not sure I buy that the size of the government is relatively fixed or countercyclical. (I do buy that ideally it would be countercyclical, but I don’t buy that it is.)

Take a look at graph # 2 again. Now, assume you have 14 balls in an urn, 5 of which are gray and 9 of which are green. What are the odds that you pull 6 balls out of the urn, and they include all five of the gray ones?

Off the top of my head… (5/14) times (4/13) times (3/12) times (2/11) times (1/10) times 6 which is just shy of 3 tenths of one percent.

Mike Kimel

June 21, 2010 5:28 pm

Jay,

FDR inherited the Great Depression, and then (even if you only include the period through 1938) produced the fastest real economic growth ever measured in US history.

For your analogy to hold, the football team would have had to have lost all its games one year, and then turned around and not only gone undefeated winning the Superbowl, but also winning the NBA championships and the World Series as well.

Mike Kimel

June 21, 2010 5:33 pm

Buff,

I cannot cover all of these assumptions on every post. Hence, on some posts I’ve relaxed some of these assumptions, on other posts, I’ve relaxed others. For instance, we looked at lags, we looked at Congress, we looked at the Fed. I’ve also looked at states (remember, there are 50 of ‘em) which knocks out the effect of one era being different from another. You’ve read all of those posts. You’ve commented on them. So you know its been done.

But I cannot write one post that takes all of those things into account or it will be the size of a book. Hence, I wrote a book. But the fact that I wrote (well, co-wrote) a book, or cannot put all these things in one single post doesn’t mean that I shouldn’t be allowed to keep seeing what else I can find.

Ron

June 21, 2010 5:40 pm

Mike,

So why doesn’t Obama suggest we raise taxes and point to your book or a similar analysis to show that raising taxes is OK since it does not hurt economic growth.

Mike Kimel

June 21, 2010 5:41 pm

buff,

Sometimes a party changes policies over the decades. When it comes to tax policy, as evident from Graph Number 2, Republicans have maintained the same policy at least since 1929. Democrats have mostly followed the opposite policy (but not entirely – two Dems thus far, Truman and Obama, have followed the Republican policy).

On military affairs, things are different. Republicans used to be isolationists. However, since Reagan, things have changed. Republicans started flexing their muscles. The wars we’ve had since then Reagan took office (the ignominy of Beirut, the invasion of Grenada, Panama, Iraq 1, Afghanistan, and Iraq2) have taken place under Republican administrations. Clinton had an afternoon in Somalia and a sterile flyover thingie in Kosovo.

Which seems to indicate that perhaps the parties have to some extent changed their policies on military affairs.

Mike Kimel

June 21, 2010 5:48 pm

buff,

Please. I noted one of the likely signs of increased corruption (i.e., government sector starts increasing at the expense of the private sector). I noted that the change in the size of government is not in itself an indicator of corruption - some pretty honest manage to do it – but that when a bunch of people who tell you government is the problem and not the solution then go out and rapidly increase the size of government, something is not right.

Then I showed that it turned out that a few of the administrations made up of a bunch of people who insisted that the government was the problem and not the solution increased the size of government quite a bit. In fact, I noted administrations that started off by cutting the tax burden tended to follow that up by making the government grow. Very paradoxical since the tax cutters tended to claim to be small government. (Plus, cutting taxes makes it hard to pay for the increase in the size of government.)

I could only conclude that something was seriously wrong with the administrations that behave that way.

buffpilot

June 21, 2010 5:51 pm

Mike,

Sorry, I assume your first chapter of the book would have a list of your assumptions. (That’s where I would have them , right up front).

Maybe you need a post of just your assumption that you have to be made to go from your non-connected data to the conclusion that says vote D.

But I have never seen a list of your assumptions. The ones I list have to ALL be true for your conclusions to work. I do not beleive ANY to be true, so QED your conclusions are not warrented from your data.

I know how your data has been done. I have always to this day called it 1 demensional analysis that’s meaningless. You continue to compare apples, submarines, cows, and rifles and come to a conclusion. Yet even in hindsight you cannot prove anything. I have asked tons of specific questions, yet the theory of economics can’t answer any of them. You have data but its meaningless. What would the GDP growth rate have been under Carter 1980-1984?

So here is a simple question. What would the GDP growth rate have been if Bush Sr had won instead of Clinton? In other words what was the contribution in GDP % of Clinton’s election?

And starting to color the two worst Dems is a laughable way to visualy trivalizes the Dems current performance. We are currently LIVING an experiment with a Dem at the helm.

So what are your assumptions? List them. Should be a simple cut and past from the 1st chapter of your book. We can then discuss them and see if they hold up. I don’t think they can for the reasons I just listed above.

Islam will change

Mike Kimel

June 21, 2010 5:58 pm

Buff,

Why would you say that lags don’t matter or the Fed has no effect are assumptions made in Chapter One? I assume you read the download. Then you would notice that two of the things we look at in Chapter One is whether lags make a difference and the effect of the Fed. We also take a quick pass at Congress (though its covered in a lot more detail later in the book). If we’re actually looking at these effects in Chapter One, then they aren’t assumptions, implicit or otherwise.

Now, in the book we didn’t cover every possible permutation, but we covered the ones we think most people will be concerned with.

Ron

June 21, 2010 6:01 pm

Mike,

Sometimes a party changes policies over the decades. When it comes to tax policy, as evident from Graph Number 2, Republicans have maintained the same policy at least since 1929.

Why should we look to a graph for policy? The policy is in law and in the tax rates and tax breaks. Did Reagan have the same tax rates as Hoover, Eisenhower, Nixon, and Ford? Did he cut many of the tax loopholes? And which tax policy is more similar, Reagan to Carter versus Carter to Ford, Kennedy to Eisenhower, or FDR to Hoover? And Throw in Bush to Clinton, Clinton to Bush, and Bush to Obama.

buffpilot

June 21, 2010 6:05 pm

Mike,

Sorry all the little crap you listed since Reagan, total probably don’t add up to a 1000 losses total.

The bottom line is my analysis is just as compelling as your and should be an overwelming reason to never vote D again. As for the parties changing policies? Have you not been keeping up in current affairs with Obama????

Why should I ever vote for the war-mongering Dems? Heck I bet I could even use some of you GDP numbers and do a dead/GDP growth rate statistic to show how many dead US citizens our pro-growth Dem Presidents thought were worth the GDP growth we got….I bet the figure is order of magnitude bigger for the Dems than the Reps.

And I actually have constitutional backing that the Pres is commander in chief of the military. Where is the Presidents Controller of the Economy Authority?

Oh that’s right, the President does not have that kind of an effect on the economy!!!!!

If you haven’t figured it out yet but this is EXACTLY the analysis you trying to sell on economics. So why arn’t you buying?

Islam will change

Dennis

June 21, 2010 6:15 pm

I think you mean current real government expenditures had those growth rates (at least, that’s what I get when I compute them), but that’s fine because that’s on point. But you are seeing some of this effect — real GDP was up under Clinton by 35.4% and under Bush by 18%, so when you look at the size of government as a fraction of GDP, it seems like the rate of GDP growth is doing at least as much of the work as changes in government spending. That is, Bush left spending/GDP up slightly and Clinton left it down massively, but about 60% of the discrepancy is GDP growth rather than government restraint.

buffpilot

June 21, 2010 6:20 pm

Mike,

Or FDR started with the US economy producing way, way below is capability (as compared with 1928), and starting from this artificially low starting point had only one way to go – straight up. He basically got us back from the lost years of the depression when we entered WWII and got to full emplyment.

Oh wait, I forgot, WW II has no effect on GDP growth. Just the President….

Islam will change

terry

June 21, 2010 6:21 pm

It does not change your point Buff, but half the Vietnam deaths occurred under Nixon who got my mother’s vote because of his secret plan to end the war. the greatest number of U.S. casualties was the civil war and we know Lincoln’s party. I would also argue that WWII we really did not have a choice and that idea would arguably let Dumbya off the hook for afgahnistan, but not Iraq. I realize that last point does not challenge your underlying argument that policiy does not really make a difference that events overwhelm policy, but as I have noted before, I will vote for the luckier party if it means the economy will improve.

buffpilot

June 21, 2010 6:24 pm

Mike,

Assumptions. What did you assume was true to start with your analysis. You assumed that GDP growth was measured the same way and the data was correct. You assumed all of the items I listed. (Otehrwise your not comparing apples with apples but apples with submarines)

Effects of the Feds and the lag are part of your analysis. What are your assumptions????

You should have a list. The ones I listed were off the top of my head.

Islam will change

Mike Kimel

June 21, 2010 6:53 pm

Dennis, I agree there’s a bit of circularity here… its a general equilibrium world (without the equilibrium) rather than a partial equilibrium world, after all. However, rapid growth does not necessarily lead to smaller G/GDP – see JFK/LBJ for a counterexample.

Mike Kimel

June 21, 2010 6:56 pm

buff,

GW complained throughout his term that there was a recession shortly after he took office. A slow start for GW is an excuse for a slow economy throughout, and a slow start for FDR is an excuse for a rapid economy throughout? How does that work? (And yes, that’s why on almost every post I stop at 1938. No war, no lend lease.)

Mike Kimel

June 21, 2010 6:57 pm

Buff,

Well, we wrote the book in a way we thought made sense. I guarantee we won’t please everyone.

Mike Kimel

June 21, 2010 7:01 pm

Ron,

I’ve had a few posts showing that so far his policy looks more like GW’s than like Clinton’s (or FDR for that matter, to use the comparison we mention in the book). That’s on him and I don’t know why he he’s made the choices he made.

Jay

June 21, 2010 7:03 pm

Mike: The base year FDR had to grow off of had capacity utilization of what? 60%? And idle labor of what? 20%? Bush inherited capacity utilization of 90% and idle laobr of what? 4%? You need to go back to economics courses to remind yourself how economies behave when they are operating below potential and at potential.

Your analogy of FDR and sports is borderline the dumbest thing I’ve ever heard, and I have listened to Maxine Waters speak.

Jay

June 21, 2010 7:07 pm

“Once inaugurated the economy is his and his alone from that moment forward.”

Not true. Bush caused an oil spill in the Gulf of Mexico years after he left the presidency.

Jay

June 21, 2010 7:43 pm

Mike: You are approaching this from the wrong direction, likely because you don’t have much a background in statistics. I give 6 girls and 8 boys each a unique coin. They all flip the coin once. The boys turn over 6 heads and 2 tails. The girls turn over 5 tails and 1 head.

Tell me how confident you are that the coins I gave to the girls and boys are unfair.

Jay

June 21, 2010 7:44 pm

Addendum: Now say I give 600 girls and 800 boys each a unique coin. They all flip the coin once. The boys turn over 600 heads and 200 tails. The girls turn over 500 tails and 100 heads.

Tell me how confident you are that the coins I gave the girls and boys are unfair.

Jimi

June 21, 2010 8:18 pm

Mike,

And a comparison of a 1930 economy to a 2001 economy is comparing Tonka Trucks to Catapillar D970 Dump Trucks!

Rdan

June 21, 2010 8:19 pm

Pete Peterson spent several more Billions than Mike did on selling his own book. Did you miss it Ron?

buffpilot

June 21, 2010 8:22 pm

Mike,

This is exactly the direction you critics will come after you. You are implicitly saying that the President, and teh President ONLY, determines the economic growth of the US. False on its face.

You have always waved away, like today, this line of questions. Becuase you never set down your going in assumptions from te start and went straight to trying to analyze data that can’t be compared. I have pointed this out before and again. And you still don’t have an answer….

No one will give you an ounce of credibility when you say that Fed policy had more to do with US GDP growth than the influenza epidemic in 1920-21. Sorry, but people will laugh at you.

You need answer to the simple assumption question I posed. And yet, even after all this time, you can’t. All the assumptions I listed MUST be true for you analysis to mean anything. And yes, the results can easily be obtained from a random walk (even if you assume everything else). Jay is correct.

And Obama is a living proff of concept. And do you really plan to hang your hat on stating that Obama should raise taxes right now to improve the ecnoomy?????? Becuase that’s where you’re going.

Lastly, the long-term economic data of the US pretty much shows that the depression/WW II is a one off ‘black swan’ type event. FDR did a good job, but his results arn’t going to get replicated short of another crash.

So go see if you can address my 4 points above, heck skip the last two and just see if you can address the first two. Without some way to address this you have some nice pretty pictures.

And I’ll vote R to reduce US loss of life…

Islam will change

buffpilot

June 21, 2010 8:24 pm

I will vote for the luckier party if that means less US citizens will die.

To each his own…

Islam will change

Jimi

June 21, 2010 8:26 pm

Terry,

Well you voted for Democrat this time around and how is that working out for you?

buffpilot

June 21, 2010 8:27 pm

Terry,

My underlying argument is that the President as about as much control over the economy as FDR had over US involvemnt in WW II. They have an input, but no where near the amount that Mike assumes in his analysis.

I would say without hesitation that the 1973 Oil embargo had more effect on US economy through Nixon/Ford/Carter/start Reagan than any Presidents economic policy. And whats hilarious the non-sceince of economics can’t refute me at all…

Islam will change

Jimi

June 21, 2010 8:36 pm

Mike,

Obama and the Democrat so called tax cutting is a joke, mainly temporary and for political purposes. Your comparison comes off as snark at best, and defintely clouds the view. Is this the type of politcal vision you are using to claim that you have no politcal dog in this hunt?

Individual Tax Cuts:

1. “Making Work Pay” Tax Credit (Sec. 1001, Page 195). In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of 6.2 percent of earned income up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

2. Increase in the Earned Income Tax Credit (Sec. 1002, Page 198). Go to the stimulus bill for all the details, but it essentially expands this benefit for the working poor.

3. Increased Eligibility for the Refundable Portion of Child Credit (Sec. 1003, Page 199). In 2009 and 2010, families who don’t earn enough to pay income tax would be eligible to claim the $1,000 child credit.

11. Computers as Qualified Education Expenses in 529 Education Plans (Sec. 1005, Page 202). This allows college students to write off the expense of computers and software, provided it’s for educational purpose and not for games.

12. Plug-in Electric Drive Vehicle Credit (Sec. 1141, Page 212). Allows purchasers of plug-in electric vehicles to write off up to $5,000 of their purchase (depending on the power of the battery).

thanks for a fine example of the ignorant use of statistics. you might at least note that Kimel is not talking about a sample, he is talking about the entire data set.

Mike Kimel

June 22, 2010 4:44 am

Ron,

You look at words, I look at deeds. I note that whether Republicans raised marginal rates or lowered them, they always collected a lower share of GDP in revenue at the end of their term than at the beginning of their term.

Similarly, sometimes policies change. I realize that every President talks about fiscal responsibility and Republicans like Ike and Nixon paid down debt. But whatever they said, Ford, Reagan, Bush Sr., and GW all increased the national debt as a share of GDP. Which means that all of Reagan’s talk, say, about the stack of dollar bills being however many miles high was just talk to me.

Mike Kimel

June 22, 2010 4:47 am

buff,

If you vote for a party based on fiscal responsibility, and you want to vote Republican after observing Ike and Nixon, it makes some semblance of sense. If you do the same after observing Ford, Reagan, Bush Sr. and GW, it makes a lot less sense. Policies change. And they change slow in the beginning. (The reason I said Nixon and “semblance of sense” earlier is that Nixon started moving toward the fiscal responsibility – Ford just continued it, but it might not have been obvious at the time.) That first run-up of debt under Ford was small. It doesn’t mean it wasn’t a bad sign.

Jay

June 22, 2010 6:46 am

Yes, a population of size N < 20. You need to go back to high school statistics.

Jay

June 22, 2010 6:49 am

Jimi: Assuming ceteris paribus is common for the ivory tower type who are too busy to be bothered with reality.

I’d also add that Mike is assuming GDP growth is independent of the prior period. If it is not, then he would have to assume the party that wins the election is determined independent of economic conditions. Otherwise the math is not as neat as Mike wishes it to be.

2) Lower than optimal marginal tax rates create government budget deficits crowd out borrowing from the private sector for investment in productive assets.

Rdan

June 22, 2010 7:36 am

Nice list. Are you a sunrise or sunset person?

Ron

June 22, 2010 8:46 am

Terry,

Nixon started with his secret plan on day one to turn the fighting over to the South Vietamese. Johnson’s presidency was characterized by escalating the war and Nixon’s presidency was characterized by de-escalating (and losing) the war. You can see this in the troop levels on an annual basis.

Ron

June 22, 2010 8:50 am

Rdan,

I would like to find one other independent analyst that vouches for Mikes analysis and conclusions (low tax rates induce corruption?). So far he’s alone on this website advertising what I don’t think most economists on the left or right would take seriously.

I think you need to define an objective function before you apply the term optimal. Optimal what? One optimum could be the point at which the government maximizes its revenue intake. Another optimal could be the rate which produce the highest level of GDP for society as a whole. Surely the rate for the latter is lower than the former.

2) Lower than optimal marginal tax rates create government budget deficits crowd out borrowing from the private sector for investment in productive assets.Apparently budget deficits that don’t try to exceed the economy’s producitve capacity in the short to medium term don’t always (last 9 years) crowd out investment. Bush had large deficits but interest rates during his term fell (and were all lower than the lowest under Clinton – who ran surpluses for his last couple of years). Obama has off the chart deficits yet interest rates are still bumping along close to zero. So where has the crowding out occured over the last 9 years? I don’t see it.

buffpilot

June 22, 2010 9:15 am

Mike,

I was out running this morning and it hit me. Have you ever been in a room giving a presentation to your boss’s boss’s boss knowing that there are people in the room who’s JOB it is to destroy your analysis and humiliate you right then? Ever?

I have on both sides of the fight. I am pretty sure I ended a Navy O-5s career when, in front of the Navy CNO and AF XO, I destroyed his analysis and made him look like a fool in under 5 minutes. How? Simple, I got him to say such incredibly stupid on their face statements that basically made all his pretty charts meaningless jibberish. In this context similar statements from you would be:

“The US/World economy faced by FDR in 1932 was the same as the one faced by Reagen in 1980.”

“The fall of the Soviet Union resulting in the end of the Cold War and peace dividend and the start of the information age had no effect on US GDP growth between 1992-1996. The entire US GDP growth rate was due solely to Clinton’s economic & tax policies. If Clinton had done nothing GDP growth would have been 0%.”

“The influenza epidemic and the world wide chaos following WW I negligible effect on the US economy compared with Federal economic policies during the 1920-21 downturn.”

Yet that is exactly what your saying….

And what worries me most is you don’t even see it…

Islam will change

buffpilot

June 22, 2010 9:19 am

Ron,

I beleive he’s saying that low tax rates are an indicator of lax enforcment of tax laws. This goes back to the idea that we can get more GDP growth by tripling the IRS enforcement divisions budget (Yes, Mike retracted that, but the idea still lurks).

A better argument is that D’s do a better job of leveling the playing field between companies than R’s do. I don’t beleive that, I think the D’s just pick a slightly different set to favor. YMMV.

Islam will change

coberly

June 22, 2010 9:38 am

Jay

i hate to say this, but I taught statistics to college students. it was long enough ago that i don’t want to get into a pissing contest with you about ‘oo knows more statistics. my point was that you have committed a fundamental error of reasoning. Kimel has not made a claim from a sample to a population. he has described the population.

when i taught, and the people who taught me, the great point was to show the common errors of ‘statisticians’ who always had their math right, but were talking nonsense because they didn’t know what they were talking about. there is unfortunately no way to teach people to think clearly.

that is what i learned with the rest of my graduate courses in human cognition, and, sadly, trying to teach statistics to people like you.

kharris

June 22, 2010 9:48 am

Wow, the same old tired debate, with the same people trotting out the same criticisms that have been answered over and over. What an impressive show of intellectual honesty.

But I digress…

“And for tax burdens to fall at a time of increasing marginal rates really requires more people avoiding taxes…” This much is surely true, but the next bit “… they legally owe” may not be, depending on whether there is an increase or a decrease in tax loopholes. This fits your thesis, in the sense that loopholes represent the ruling party’s effort to jigger the system for interest groups.

I see in earlier comments this is already under discussion, but it’s already written, so here goes — Figure 3 has expenditures as a share of GDP on one axis, changes in tax burden on the other. We already know that changes in tax burden vary with GDP, so unless we have a firm grasp on what the numerator in Expenditure/GDP is doing, we cannot know whether the slope in figure is entirely due to the slope in figure 1. Again, this still fits with one of your theses, that the rhetoric of virtuous tax cutting is not supported by the facts. What we can’t tell from the graph is whether tax cutters accelerate the increase in the size of government, or that government becomes a bigger part of the economy because private growth falters – or both.

coberly

June 22, 2010 9:52 am

Ron

i hate to see you put so much faith in “experts.” Truman called for “a one armed economist.” Since then we have had nothing but one armed economists.

You need to try to learn to do some of your own thinking. I could be wrong about Mike’s thinking, but my guess here is that “lax enforcement” is a “guess” about why the numbers come out the way they do. There doesn’t seem to be much doubt about the numbers themselves.

And in any case you have got the hypothesis wrong. It’s not “low tax rates induce corruption.” it’s that low tax rates are part of a policy package favored by adminstrations that do not enforce tax laws, or other “government regulations.”

my own guesses about the cause and effect underlying Mike’s numbers are a little more complex. But it might more or less simply be stated that Democrat policies,through no fault of their own, tend to favor working people (it’s how the Dems get elected), and working people spend more money on the economy than do rich people, who, when there are limited investment opportunities, have nothing else they can do with their excess wealth than to gamble with it, which because of the scale of their gambling tends to have the same effect on the national economy that a gambling addict has on his own famiy’s economy.

coberly

June 22, 2010 10:00 am

buff

what worries me is that even – I – don’t see it.

i guess you did a good thing destroying that man’s career, but i suspect you got away with it because the other people in the room were as disinclined to think carefully as … well, as people are generally.

i don’t know if the guy was really as wrong and foolish as you say, but the kind of “analysis” you present here is not very convincing to me. and i generally agree with you that reality counts.

i am suggesting that you try to back away from what you think Mike is implying, and just let the “facts” settle. For whatever reasons, whatever luck, whatever external “reality,” Mike seems to have shown that, contrary to conventional wisdom, Republican administrations have not shown superior growth in the economy as compared to Democratic administrations. It strains my patience to hear people argue that is just because of “luck” or “1932 was not the same as 2002,” or, or, or….

yes, we know about all those other factors. nevertheless, Mike has shown us a “reality,” which we might better try to understand than dismiss in a panic because we don’t like the implications.

buffpilot

June 22, 2010 10:43 am

Mike,

I vote on three things:1) Which party will work to increase (or at least not decrease) individual liberty (which includes economic liberty). Rs overwelmingly win on this criteria vs. the left.

2) Small effective Government – large, more intrusive government has always come at the cost of individual liberty. R’s tend to have a slight advantage here over the Dems but not much of one.

3) Strong national defense – without which you are at the mercy of your neighbors. As the richest country in the world we have a lot to defend. If your Holland and surronded by Democracies you can let the US defend you. If your Israel and surronded by people who wish to exterminate you, not so much.

In all of the posts over the years at AB and other sites, you have convinced me of one thing. Economics is not a science, not even a science like Astronomy under Aristotle. It literally has nothing there.

As for fiscal responsibility, well we have the Dem congress under Reagen that cut taxes but would not cut programs. Under Clinton we had a Dem President that tried to expand government under Hillary-care but was stopped by a backlash and then the Gingrich (R) revolution brough fiscal sanity to Clinton. Bush Sr, then reversed the trend under the twin hammers of the dot-com bubble pop and war and spent like a drunken sailor. Now we have Obama which has buried deep, really, really deep, any claim by the Democrat party that they are the party of fiscal responsibility. Bush Jr was a miser in comparison to Obama….

I’ll take the party that was ‘lucky’ not to get hundreds of thousands of US citizens killed in war over the party that was ‘lucky’ to get slightly higher GDP growth. BTW, how’s that going under Obama?

Islam will change

buffpilot

June 22, 2010 10:49 am

coberly,

You obviously don’t do analysis. He has NOT shown the D admins are superior than Rs. (Or vice a versa). His data is not comparible. And that is my point.

And economics can’t answer the questions and neither can you guys. Has anyone ever done analysis for real around here?

What I have learned from all this is economist don’t have a clue.

Islam will change

buffpilot

June 22, 2010 10:54 am

Part 1:

Early September 2010, Mike finds himself in front of the EIB Golden Microphone as host Rush Limbaugh interviews him plugging his book. This is a golden opportunity to get his book sold to millions….

Rush: ”Welcome to the EIB network Mike. I read your book Presimetrics: How Democratic and Republican Administrations Measure Up on the Issues We Care About. Great title by the way. I hope to ask you a few questions about your book and how you came to your conclusions.”

Mike: “Thank you for having me. I feel I did a non-partisan analysis of the data and it led to the conclusions outlined in my book. Some of the results surprised me truthfully.”

Rush: “You compare Presidents from Hoover through Bush II. I assume you haven’t included Obama since he wasn’t in office long enough for the data to make your book. I’ve written a few best-sellers myself and understand the lag time from writing to publication.”

Mike: “That’s correct. President Obama had not been in office long enough to be included. Though, so far, his economic policies have been very much like Republican administrations.”

Rush: “So you’re saying that Obama is acting like a Republican? That would be news to me and to the millions of EIB listeners out there.What we are seeing is the fruition and failure of Democratic economic policy. The Democrats own all levers of government and since 2006 owned congress. You do remember that in 2007, just after the Dems took back Congress was when the wheels started to come off the economy. But I digress; let’s get back to your book.”

continued…

buffpilot

June 22, 2010 10:55 am

Rush: “In you book you compare GDP growth rates between Presidents and come to the conclusion that Dems are better for the economy due to slightly higher average growth rates. So you’re telling my listeners and I that the US economy under FDR in 1932 was the same as faced Reagan in 1980 so that you can compare them, correct?”

Mike: “Yes. The US economies are basically the same and respond directly to US Presidential policies. You can see the results in my book.”

Rush: “So the 1932 economy, with capacity utilization of 60% vs. 90% in 1980, idle labor was 20% vs. 5%, farmers represented 40% of the US labor force vs. 4% in 1980, total US GDP in 1932 is the same as the GDP of the state of California in 1980, etc, etc …yet you’re telling me that the US economy is the same so they can be compared. Am I correct?”

Rush: (incredulous voice): “Ok… just minor differences.I think El Rushbo just pointed out they were far from minor…let’s talk about your idea that the President controls US GDP growth.”

Mike: “The premise of my book is that Presidents control the economy through their policies. The data proves that Democrats are far better at economic growth than Republicans.”

Rush: “So the Presidential policies control the economy, correct.?”

Mike: “Yes”

Rush: “ So in 1992 if Clinton had done nothing, went out and spent his time on Hillarycare and Mideast Peace and did nothing economic, the economy would not have grown?”

Mike: “Obviously it would have grown even if Clinton had set on his hands and did nothing. The point is his economic policies were what cause the great economic expansion of the 1990s ”

Rush: (Sarcastically) “So how much would have it grown without the steady hand of Clinton on the helm.”

Mike: “Well I don’t know, economics aren’t that refined.”

Rush: “So you really don’t know what caused the growth during the 1990s. It could have been Clinton, or the fact that the US entered the information age and the peace dividend from the Reagan/Bush team’s takedown of the Soviet Union. Can you quantify which was Clinton’s contribution?”

Mike: “No, [...]

Greg

June 22, 2010 11:07 am

” So where has the crowding out occured over the last 9 years? I don’t see it.”

You wont see it because it doesnt exist. Crowding out is a myth. Interest rates are low because they are SET low. If the Fed wants rates at zero, the market cant do a damn thing about it. Want proof?? Look at Japan the last decade and the US the last two years.

Crowding out is an obsolete term originating from a theory called “loanable funds” which is about as accurately decscriptive of our present reality as phlogiston was in physics over a century ago.

Unemployment/underemployment is over 15% and capacity utilization is at around 70% at present. The private sector isnt being crowded out by the govt borrowing they are taking a hiatus of their own volition. Theres plenty of labor to buy and plenty of capacity that can be ramped up, the only thing missing is people with disposable income.

coberly

June 22, 2010 12:34 pm

sandi

i don’t know if the objections others have posted here would turn out to be valid if we were careful about what we are talking about. so don’t think of this as an objection but a suggestion for further thought: i suspect that “lower than optimal…” tax rates would mean something very different in an economy where “the rich” were not quite so hopelessly rich as they are today.

and i assume that by optimal here you are referring to effects on GDP. that would follow from “disinvestment in productive assets,” though ron apparently couldn’t see that.

and your point 2 really addresses the problem of paying for what the government buys. while an argument has been made that “growth” will take care of the deficits, it is not at all obvious that that has been the case for the past thirty years. may have something to do with the level of the deficit, and the “fact” alluded to above, that the rich already have more money than they know what to do with… except gamble. which means that i agree with greg at least up to a point. investments are down not because interest rates are high, or that the government is borrowing money that would otherwise go to “productive assets,” but that there is a lack of sufficient possible productive assets to meet the cash available, part of that is due to workers not having enough money to spend, and part of it is due to “the rich” having more than they know how to spend, or invest.

coberly

June 22, 2010 12:43 pm

Buff

spare me the “you don’t do analysis” crap. i did nothing but analysis my whole working life. was it the same kind of analysis you do? probably not. all i am saying here is that your analysis here is not convincing.

what I think Kimel HAS shown is that at least for the last twelve presidencies economic “growth” has not been “better” under a “low tax” administration. what that means for the future is not something i can say. and of course it says nothing at all about “democrat wars.”

though at this point someone (MIke?) could take a look at “spending for war” and compare it to “growth in the economy.” but to be honest with you i don’t see how sending young men to spend two years in the army could be good for the economy.

coberly

June 22, 2010 12:44 pm

then i’d want them to answer… just speculate really… whether spending the money on something more useful than blowing things up would have resulted in even more growth over time.

coberly

June 22, 2010 12:48 pm

buff

first thought error:

mike says obama looks like a republican to him. rush says “democrats control the levers of power.”

surely you can see that rush’s reply avoids the point.

coberly

June 22, 2010 12:50 pm

Buff

you have obviously been listening to too much Rush. a bit of non sequiter and mischaracterization goes a long way toward fooling the people who desperately want to believe that they have been right all along.

Ron

June 22, 2010 1:17 pm

Kharris,

The analysis is a waste of time. Tax regimes most often don’t radically change between presidents. The biggest changes that I see is between Hoover and Coolidge (a tax increase) and Reagan and Carter (a tax cut). The marginal tax rate was high (at least before tax loopholes) from Hoover to Carter; From Reagan to Obama they have been low. Had Clinton faced recession rather than a recovering economy in 1993 he probably never would have raised taxes and Obama won’t raise them today for the same reason — high taxes hurt economic growth.

Ron

June 22, 2010 1:32 pm

Coberly,

mischaracterization goes a long way toward fooling the people who desperately want to believe that they have been right all along.

Don’t you want to believe you were right all along? It seem you do with regards staying in the social security frameworks set up about 75 years ago.

Bill White

June 22, 2010 1:43 pm

I’m somewhat confused. Isn’t science at least somewhat about falsifying hypotheses? We have a hypothesis that low taxes lead to high economic growth. We can measure taxes by marginal rates or by tax burden. We measure the economy by GDP, so a testable hypothesis is that a lower tax burden leads to higher GDP growth. We could also assert that lower marginal rates lead to higher GDP growth. They may or may not be the same antecident. So, if Mike has data which shows that a lower tax burden hasn’t led to higher economic growth, then the hypothesis is thrown into doubt. Perhaps it is not falsified, but it’s thrown into some disarray. Perhaps the negative correlation is not large enough to be significant. That’s a statistics question, which should be easily answered. I’m not a statistics expert, so I hasten to add that I don’t know.

A more interesting question is whether the data points are comparable, as BP seems to think. Perhaps we can’t compare FDR and Reagan, or Truman and GHWB, as the ecomomies of their administration were very different. But if that were the case, how could we compare any two administrations, even for the purposes of voting? If the past performance of the R ideology is incomparable with any period of the D ideology, then it must be that past performance of the D ideology is incomparable with any period of the R ideology, and we can’t decide whether to votefor Obama or McCain or even Lyndon Larouche. Surely that’s not what BP has in mind? Or maybe what he has in mind is that Ds can be compared unfavorably to Rs, but Rs can’t ever be compared unfavorably, because the situations are different.

Greg

June 22, 2010 1:46 pm

“high taxes hurt economic growth.”

Depends on whats being taxed. Higher taxes on working people who spend all their income would hurt, higher taxes on those who save a sizeable portion would have no affect.

buffpilot

June 22, 2010 2:17 pm

coberly,

Well if you have done analysis, try explaining the idea that the US/World economy is the same in 1932 as 1992? Its not, so comparing growth rates between the two are meaningless. He and you are comparing apples to submarines.

And the idea that the President has the dominant (i.e. order of magnitude greater) input to the economy than everything else is laughable on its face. Show me ONE reputable PhD economist who beleives that tripe. But your selling it. Your telling me that Nixon/Ford had more effect on US GDP growth than the 1973 Oil shock. Do you really beleive that? Do you really beleive that the Oil shock had miniscule effect on US GDP grwoth compared to Nixon’s economic policy????

Mike stated that the Fed had more effect on US economic output in 1920-21 than the all of limited list of chaos going on in the world post WW I. Do you really believe this?

You are convinced becuase you want to be convinced.

I have learned so far is both the Rs and the Ds claims on the economy are total crap, mostly becuase economics is equivelent to astrology.

Islam will change

Jack

June 22, 2010 2:20 pm

” Or maybe what he has in mind is that Ds can be compared unfavorably to Rs, but Rs can’t ever be compared unfavorably, because the situations are different.”That’s the essence of the ideologue’s perspective, heads I win, tails you lose.

buffpilot

June 22, 2010 2:26 pm

Obama is a Democrat. I thought that was obvious. He is also far to the left of Clinton by any measure. Calling Obama a Rep is laughable to everyone…

My point is how easy it is to take apart his entire premise. I could have gone on, but I thought my point was clear. Mike is standing on very thin ice and needs to have answer to these questions down pat, or he will get laughed out of the room.

I also played Red Team many times before SECAF and AF generals went before Congress to testify. I was repeatedly commended for being far meaner than the actual congressmen. And I have intentionally limited myself to only information Mike brings to the table. Otehrs will bring their own information.

But I have nothing on the right-wing talk shows or the DKos/DU insane asylums.

But I have always said Mike should go MORE partisan than he’s trying for. The idea here is to sell books. ($)

Islam will change

buffpilot

June 22, 2010 2:33 pm

I have not listened to Rush since 2006 and then probably less than once a month and for a short time. I just don’t listen to much other than NPRs top of the news and music on radio.

I was trying to characterize Rush from vague memory and lefty characterization of him. Not sure I got it right, but you comment means I was close.

But Mike still has never addressed his assumptions. Here’s another one.

5) In abscence of any Presidential involvement in the economy the GDP growth will be zero.

If thats not true then what is the baseline? And then what is due to the President?

I came to AB to lern economics from a mostly (except for PGL) to learn about economics. What I learned is economics is basically guesswork and has as much validity as Astrology. Except Astrolgy seems to at least be able to predict the past with 20/20 hindsight. Economics can’t evn do that…

Islam will change

buffpilot

June 22, 2010 2:58 pm

Bill,

Entire first paragraph comes down to being unable to drive from cuase to effect. Way, way to many inputs, most of which can’t be quantified. It assume that the effect of lower(or higher) tax burdens can be discerned from all the other inputs. Not possible. We don’t even know what the baseline is. According to Keynesians you should raise taxes in good times and lower in bad (run defict). I believe the Chicago school has other thoughts as does teh Austrians (and whomever else I’ve missed - goldbugs?). Clinton raised taxes, what effect did that have on GDP growth vs not raising taxes? Would GDP growth have been higher or lower if Clinton had raised taxes and increased spending even more and run a big defict? Basically depends on whom you ask, lots of theories out their and no science to back up anyone’s claims (Mike included).

As for comparing between Presidents for voting? Not based on GDP growth rates for sure. We can on the extreames. Hoover failed, tried things that didn’t work and FDR took over. Was Hoover a bad man, probably not. Just didn’t grab the right levers at the right time and failed massively. FDR took well over adecade to get us out of the slump, but he showed determination and grit and mostly leadership and held us from the twin evils of a Communist revoltion or a Fascist style – both were true threats in the early 30s. WW II brought us the rest of the way out.

As for the rest, well every President had his pluses and minuses. But they have no where near the control over the economy that Mike assumes. I go with the one who’s party and backers push for the greatest amount of individual freedom, small effective government, and strong national defense. Currently, I’d rate the two parties on these three items as R, draw, R. this is a free country, pick your own criteria.

But none of the analysis over the years gives you a clue who to pick on economics. And I’ll trade a LOT of GDP growth to avoid another Carter. But if there is one correlation, is that a President does not want to go into a re-election cycle with a down economy – to quote the best line from the 1992 campaign – “its the economy stupid.”

But we will have a test case in Obama to really see if D’s are better than Rs’. Will you vote for him based on his economic performance if we still have 10% unemployment and flat GDP growth in 2012?

Islam will change

Rdan

June 22, 2010 3:22 pm

Seems obvious the Republicans chose the mantra as an accolade. Gotta own it and live with it. Problem is the Dems haven’t been as simple in their advertising. Or not a problem.

coberly

June 22, 2010 3:41 pm

Buff said

“Well if you have done analysis, try explaining the idea that the US/World economy is the same in 1932 as 1992? Its not, so comparing growth…”

As far as I can tell the only person who has suggested that it was … is you. What mike has done is show that for Presidents who cut taxes, growth has been less than for Presidents who raised taxes. Now if that’s true for times as different as 1932 and 1992, it suggests the finding is rather robust, and not that “you can’t compare…”

Pretty much the same argument applies to the rest of your post. It is not me who is convinced because I want to be convinced…. it is you. I rather make a point of not being convinced by much of anything. I am watching you flop around like a fish out of water. You don’t understand where you are, but you know you don’t like it. Me, I’m just the bulldog on the bank.

coberly

June 22, 2010 3:45 pm

Ron

“tax regimes .. don’t change between presidents.” except for the Clinton tax raise, which of course he never would have done had he not faced a recovering economy. It’s nice to have an explanation handy for every exception to the generalizations you live by. And what did the Republicans say about the Clinton tax raise: it would sink the economy. Of course it didn’t, but that was ‘because”… well, because something else happened instead.

coberly

June 22, 2010 3:49 pm

Buff

I am not even sure that Mike has stated a premise. He has shown some data. No premise was necessary.

Your point is no doubt very clear to you. And I suspect it would sell well to other people who want to believe that high taxes hurt the economy. But it is not at all clear to me.

Obama may be a Democrat, but I have been thinking he sure acts a lot like a Republican, and I am not a great admirer of either party.

coberly

June 22, 2010 3:52 pm

Ron

i have not been right about Social Security for 75 years. That must have been someone else. I have only been right about it for about the last 12 years when I looked into it, starting with no preconceptions whatsoever. As for frameworks that have worked for 75 years, I tend to accord them more respect than the latest fad in political philosophy.

coberly

June 22, 2010 3:55 pm

Buff,

I agree with you about “economics.” But your reaction to Mike sounds more like someone whose religion has been questioned. As for Rush, I got to listen to him on a long drive across the country about ten years ago… because that is all that is on the radio between the east coast and the west.

i think you were close enough. he specializes in nonsense. making Paul Harvey look like a conservative. (that’s a joke i won’t bother to explain.)

coberly

June 22, 2010 4:02 pm

Bill White

you are not a statistician. rejoice. but your analysis looks about right to me. there are some people who are beginning to understand that statistics is often badly misapplied. it’s what i was taught in graduate school. it turns our that JM Keynes made a point of it… at least distinguising between events that could be assigned a probability and those that could not. Buff would be right to say it is difficult to draw any conclusions about future perfomance of the economy by party of the president from Mike’s data. Stuff happens.

But he is wrong in the way he goes about trying to make that point. And, most of us practical folk, would probably, if we knew the facts, tend to suspect that the promise that tax cuts will grow the economy may not work any better next year than it has for the last thirty.

buffpilot

June 22, 2010 4:52 pm

Once again you duck, I’ll take that has surrender.

Come back when you actually have an answer to my questions.

buffpilot

June 22, 2010 4:56 pm

coberly,

Well I think it cut 1% off the US GDP growth that was caused by the US entering the information age.

So Clinton under performed….he sunk the economy and cuased the dot-com bust.

But you can find an exception for everything…but no actual logic or economics to back it up.

By the way, why are you voting Dem? They managed to kill far more US citizens in their wars for the past 100 years than the Rs. Or do you value a trivial difference in GDP growth over mass death of US lives?

Islam will change

buffpilot

June 22, 2010 4:59 pm

Bill,

This is not about tax cuts or not. Its about lack of analytic rigor. Mike has consistantly compared apples to submarines (and teh book will continue it) and say he has something.

The fact that he can’t address my rather simple questions reinforces this. And like I said before my criticism are nothing compared to the pundit class.

Islam will change

buffpilot

June 22, 2010 5:03 pm

coberly,

This site is what has taught me that economics claim are crap from BOTH parties. My religion hasn’t been assaulted, I just see crap analysis and pointed it out.

The fact everyone dodges the question reinforces the fact you have nothing but want to beleive you do. That’s religion for you.

But I’ll wait for this site’s endorsement of the R challenger to Obama if the economy still sucks like today….

Islam will change

Mike Kimel

June 22, 2010 5:13 pm

Jay,

Before you suggest that someone doesn’t have a background in statistics, make sure you aren’t trying to explain that a probability problem should be restated as a different probability problem. Probability is notEspecially if your restatement is wrong… there are 5 grays and 9 greens (or 5 girls and 9 boys if you prefer). And the order matters.

But… if you want to make this into a statistics problem, fine. Where you probably want to start is by testing whether the two groups have the same mean. Assume the variances are the same and you’re talking a simple t-test, and I can guarantee you really won’t like the results.

Mike Kimel

June 22, 2010 5:14 pm

Jay,

“I’d also add that Mike is assuming GDP growth is independent of the prior period. If it is not, then he would have to assume the party that wins the election is determined independent of economic conditions.”

I’ve had that post already. Do I have to do everything thirty times?

Mike Kimel

June 22, 2010 5:21 pm

Jay,

Please. Bush may have loosened standards, but Obama let them stay loose. If you ask me who should have done something to prevent the spill since January of 2009, Bush or Obama, the answer is Obama. Period.

Buff,

We get to the same point every few posts – with you (with all due respect) – mis-stating my position. Once again… every President has to deal with things outside his control. But the buck stops at the Oval Office. And it is the President’s job to make things better, not make excuses.

I’ll give you an example from the book. We noted that the murder rate exploded while JFK/LBJ were in office. And we noted the main reason why – the population of 18 to 25 year olds grew quite a bit. But then we asked – does this excuse JFK/LBJ? And the answer is heck no. After all, if conditions are ripe for an explosion in the crime rate, the guy in the Oval Office should be paying extra attention to that issue and putting a lot more resources into the problem. Waiting for the tsunami to hit and then complaining that it did hit is not what we’re after in a president.

Mike Kimel

June 22, 2010 5:23 pm

buff,

I don’t mean to alarm you, but it isn’t difficult to think of scenarios where actions by the guy in the Oval Office in 1973 would have prevented the Oil Embargo from happening. Or done a better (or worse) job of mitigating the problem if it occurred anyway.

Mike Kimel

June 22, 2010 5:26 pm

buff,

I know your criteria (1) and (2) are the kind of thing that are more likely to create externalities in practice. When the guys drilling for gas decided, implicitly, to stuff my apartment with diesel fumes sickening my wife, my cats, and I and causing us a few thousand dollars in costs, I didn’t take much comfort in the knowledge that they would have fought any regulation as an infringement on their liberty.

Mike Kimel

June 22, 2010 5:32 pm

Ron,

Not long ago we were debating how much faster Rs grow the economy than Ds and people insisted I needed some experts to approve of the data I pulled from the BEA NIPA tables that showed it wasn’t happening.

We’ve since moved on – we aren’t even arguing the point, apparently, that the data shows, which is that a reduction in the tax burden in years 1 and 2 tends to be followed by slower economic growth in years 3 through 8. Now you just want independent corroboration that its corruption that’s doing it. I guess its progress. Now, I haven’t been able to been able to prove corruption completely, but then it took a long time to prove to everyone’s satisfaction that historical data just wasn’t going along with the R = faster growth meme.

And I didn’t wait for the blessings of some pope on that issue, and I’m not waiting for the blessings of some pope on this one. The data shows what the data shows.

Jimi

June 22, 2010 5:38 pm

Coberly,

Analysis = “an investigation of the component parts of a whole and their relations in making up the whole.”

Fact = “a concept whose truth can be proved.”

There is no question Mike is presenting the facts proved by the data, about how well the economy does under certain Presidencies. What Mike is not doing is, he is not making an Analysis. It’s real easy to say “the data shows the economy is stronger when Democrats are in office,” but it is very difficult to say “The economy is stronger when Democrats are in office because Democrats have typically raised taxes, but not all the time, and they spend more that Republican, oh…but not all the time.”

All we have asked for is, if you gonna thorw politically motivated conclusions out, show us how you got there.

Mike Kimel

June 22, 2010 5:38 pm

buff,

As I noted upthread, its taken a long time to get to this point from where we started, which is “let’s check whether Rs really do produce faster economic growth than Ds.”

And then it sunk in, after a bunch of posts. And then the excuses began. And I checked Congress, and the Fed, and lags, and everything else. And then checked them again because once I tried to move on the same excuses that had already been discarded came up again.

And look where we are now. The same excuses come up again. But there is also progress: the first graph shows that a reduction in the tax burden in years 1 and 2 tends to be followed by slower growth in years 3 through 8 and nobody bats an eye.

Mirabili dictu. Now, I know with certainty that the excuse will come up again that growth leads the tax burden no doubt on the very next post that does not cover this topic explicitly. But we’re still moving forward.

Jimi

June 22, 2010 5:39 pm

KHarris,

They haven’t been answered over and over, but then again maybe they have in your mind, because you like what hear, and that’s good enugh isn’t KHarris…Feeling good is good enough for you….Is that it?

Mike Kimel

June 22, 2010 5:40 pm

Buff,

“Obama to really see if D’s are better than R”

No. As we said in the book, in the end its about policy. And I’m now working the policy angle. And the policy is cutting the tax burden. And we’re testing yet again whether cutting the tax burden is good for growth.

Mike Kimel

June 22, 2010 5:41 pm

buff,

Either you have to start remembering what was covered in previous weeks or I have to start writing posts that are 98 million words long.

Jimi

June 22, 2010 5:46 pm

Mike,

How do you know that is the proper Lagging? You don’t but yet you persist, as if “How dare we question?”

coberly

June 22, 2010 8:48 pm

buff

i guess i can’t answer a nonsense question. but i was trying to be nice. once again, no one made the suggestion that ’32 was the same as ’92 but you. so i guess i’ll have to duck explaining it.

coberly

June 22, 2010 8:52 pm

Buff

you are raving. i don’t vote dem. of course i stopped voting rep when they decided to dance with the devil. but it looks like after showing the dems how to win elections for 30 years, the dems are if not dancing yet, certainly smiling and moving their hips.

i would like to try out that crystal ball that tells you the exact size of something that didn’t occur.

coberly

June 22, 2010 8:56 pm

buff

i am sorry to see this happen to you. but it isn’t all that uncommon. you encounter something you don’t like so you refuse to even see the logic that is being offered. it’s one thing to argue against it… and take your chances… but to deny it entirely sounds like panic.

i wouldn’t count on “this site” endorsing anyone. lots of different opinions here, and no editorial board that i am aware of. besides the R’s have done a pretty good job of scaring at least some of us into voting for the lesser weevil.

Greg

June 22, 2010 9:03 pm

Wow buff

You chastise Mike and Coberly for being unscientific and not doing enough analysis and then you say this??

“But we will have a test case in Obama to really see if D’s are better than Rs’.”

Yeah…. one data point makes a case. Good job.

Remember, it is only the Art Laffers of the world who have made the audacious claim that a tax cut is always the right remedy for an economy, actually it probably more accurate to say that their claim is that high taxes (especially on those “productive” rich people) ALWAYS deter growth.

One only needs two data points to disprove this. Your objection above….

“ Way, way to many inputs, most of which can’t be quantified”……..

actually is damaging to the conservatives position because they so blithely claim that tax changes BY THEMSELVES will have these ‘magic’ effects. Any thinking person knew that claim to be ridiculous but they continue to make it and the Jimis of the world continue to regurgitate it. Yes the economy is a complex animal, shaped by many things BESIDES tax rates. Why dont we actually try to examine all the factors and not just ignorantly spout the anti tax message as the remedy for everything? Their anti tax message is not one they spout in a genuine interest to improve the economy its to simply keep more of what they THINK they deserve.

Mike Kimel

June 23, 2010 4:33 am

k harris,

Assuming I don’t forget, your last sentence is more or less what I was planning to look at next.

coberly

June 23, 2010 9:39 am

mike

since it’s only the grownups here for the moment, allow me to say i don’t quite agree with you about this. JFK/LBJ did not campaign on a program to reduce crime or even hold the line in the face of the demographic tidal wave. yes, it that happened on their watch we would be within our rights to vote them out if they didn’t deal with it as well as the next guy says he can.

But that is a lot different from a party that routinely campaigns on the claim that tax cuts will pay for themselves, that tax increases will kill the economy… and then when we actually look at the record we find out that it has never happened. not once. not more often than not. not once.

arguably there are factors influencing the crime rate that would be difficult for the President to control. We don’t want a government parenting officer inspecting every family in the country in response to “the Present Emergency”. But “regulating” the economy IS one of the things we hope a government can do. It IS what both parties claim to do a better job than the other every election, and these days 24/7 on the “free, you gotta be free” press.

But the evidence that it just doesn’t happen the way one Party’s perennial campaign slogan says, ought to give us reason to think.

coberly

June 23, 2010 9:49 am

jimi

thanks for the definitions. the next step, of course, is to examine how the definitions apply to the present argument. to incorporate them into our analysis, as it were.

it is hard to prove anything at the best of times. impossible to prove them to people who have a religious objection to facing the facts. i may have misread, but i thought that Mike had shown that raising taxes did not reduce economic growth, and that cutting taxes, surprisingly, did. Now maybe I am jumping to conclusions here, but that “fact” suggests to me at least that claims that cutting taxes always increases growth, and raising taxes always cuts growth, may not be a reliable guide to policy. i would agree with buff that the opposite claim is “not proven.” though in a busy world, normal sane people would “bet” on it if not given a strong reason to suspect it won’t be true ‘this time.”

and so far, you and buff have not given me a strong reason to suspect it won’t be true. and that is about as far as i need to go. what you and buff are doing looks to me a lot like putting your fingers in your ears and shutting your eyes and screaming “it isn’t true. you can’t make me see it.” and being old hands and political debate, your next line is “your politically motivated conclusions….”

well, perhaps they are. whereas we know yours are not politically motivated, but merely direct from the mouth of god.

coberly

June 23, 2010 9:51 am

ron

“high taxes hurt economic growth.” brilliant example of reasoning from “that which is to be proved.”

coberly

June 23, 2010 11:24 am

poor Jay

he comes home to find his wife in bed with another man. he starts yelling and calling her names. and she jumps up and says:

“all you have is a population size of N<20. you need to go back to high school."

so he gets all quiet. nods his head. and goes out to register for night courses.

Jimi

June 23, 2010 5:54 pm

Mike,

And the reason in throwing the baby out with the bath water is where?

Jimi

June 23, 2010 6:07 pm

Greg,

“Yes the economy is a complex animal, shaped by many things BESIDES tax rates. Why dont we actually try to examine all the factors and not just ignorantly spout the anti tax message as the remedy for everything.”That is all that is being asked by the Buff’s and the Jimi’s of the world, but the Greg’s and the Mike’s of the world pretend they have the full understanding, and the conclusions are all proven. So what are we to make of the Greg claims?

Conclusion: The Greg’s don’t know what they are talking about, and to politically motivated to admit it.

Jimi

June 23, 2010 6:16 pm

Coberly,

Christ all Mighty…you just proved exactly what we are saying

“Obama may be a Democrat, but I have been thinking he sure acts a lot like a Republican, and I am not a great admirer of either party.”

Obama is a Democrat and when he acts like a Republican, his results still end up in the Democrat column, therfore Mike’s premise that policy dictacted by Party Ideology goes to hell.

So we got people like you running around saying “Democrats good-Republicans Evil….Oh but wait…except for him…him, and him.”

Hasn’t it occured to you that the equation is so complex that we don’t even know how to do the calculation? Of course it didn’t occur to you, because ITSOKWHENITSADEMOCRAT!

coberly

June 24, 2010 1:21 am

Buff

you completely misunderstand what Mike did. assumptions form no part of it. he looked at some numbers and noticed something that had gone unnoticed.

it’s economists who make assumptions.. about how people will behave, for example, in order to make predictions.

but you don’t need assumptions to look at numbers and notice that the members of one set are larger than the members of another set.

coberly

June 24, 2010 1:28 am

jimi

you haven’t been paying attention. the fact that you can’t follow the argument means that you keep having these profound revelations that what you always thought was true.

the question is not at all that comlex. mike looked at growth in gdp by president and tax policy. he found that, contrary to conventional wisdom, there is no evidence that tax cuts produce more growth than tax raise. in face, surprisingly, it has been the other way around.

and you sure as hell won’t hear me saying democrats good. Republicans evil, yes. but that is their own choice. i understand that when you sell your soul, the devil takes your brain in pledge.

Greg

June 24, 2010 5:48 am

Jimi

What “claims” have I made? I’ve claimed that simple changes to the tax code are never a sufficient condition to evaluate an economic policy. I’ve claimed that from day one.

Why have I felt it necessary to claim that? SInce 1980, all we’ve heard is that republicans hate taxes and democrats love taxes and thats why you dont want democrats running the country because their taxes will kill economic growth. That has been the simple, unvarnished claim. That has been the depth of the conservatives analysis. Look at taxation and you’ll immediately be able to discern economic growth. They even came up with a “Laugher curve” to prove it (which in typical conservative fashion consisted of two data points and a completely made up bellshaped line connecting them).

Mike has destroyed the underlying premise of the conservative position on economics for the last three decades. Has he PROVEN that high taxes lead to better economic growth? NO! He wasnt even trying to do that. He’s not a conservative so he’s not prone to overstating his data. He has disproven the conservative talking points by showing that not only has the economy done well with democrats at the helm its also done well in high tax environments. This is a big enough accomplishment. This alone will turn conservatives into seeking a nuanced analysis of the economic factors instead of just looking at tax rates, a more of a Bruce Bartlett type conservative. Thiscan only make our conversations about economics better.

You and Buff are trying to claim he’s over reaching when in fact he’s only asking more questions. He has not tried to make any audacious claims about high taxes and growth, he simply is saying “Hmmmm this is interesting, lets try to see what it means”

Mike Kimel

June 25, 2010 6:18 pm

jimi,

Take a look at Graph #2. The differentiation going back to 1929 is whether an administration raised or lowered the tax burden. I even picked colors that are purposely not red and blue.